The Foreign Office (FCO) was on the defensive today over coalition plans to cut £560,000 a year from monitoring of human rights failures around the world, as part of measures to reduce the budget deficit.

William Hague denied the government was "abandoning the less fortunate" but confirmed reports that officials are reviewing the ways that the annual human rights report, a policy initiative under the late Robin Cook, "can most effectively be produced in the current financial climate". Options may include an online version or less glossy Whitehall publication.

The threat to a report that last year pointed the finger at 22 countries – from China to Saudi Arabia and Zimbabwe – prompted criticism from charities, MPs and former ministers, led by David Miliband, the Labour leadership contender and former foreign secretary.

In a statement, Miliband said the report was a "crucial tool in ensuring that there is accountability and oversight at a time when human rights abuses require Britain to show leadership rather than to walk away."

He added: "Britain has led the world in standing up for human rights and the coalition is taking a serious step back."

Hague said support for human rights and poverty reduction was at the coalition's "irreducible core", and British character and tradition required that it be so. But Miliband's willingness to intervene suggests sources inside his old department have confirmed that the threat was real. Some £560,000 had been cut from the human rights and democracy fund, he revealed.

The former Lib Dem leader, Sir Menzies Campbell, a private critic of many of his party's coalition compromises with the Tories, said backsliding on human rights would be met with "fierce resistance". Denis MacShane, minister for Europe during Tony Blair's second term, rejected suggestions that large amounts of official time and expense were used to hunt details of abuses.

"Embassies report every day on political and human rights issues in different countries," MacShane said. "All the FCO did was collate, edit and publish this information in a similar manner to the US state department's annual green book on human rights. This is 100% an ideological decision by the government to downgrade human rights as an element of foreign policy."

MacShane added: "It corresponds to William Hague's focus on Gulf states, China and north African states where human rights are violated."

Miliband admitted errors during Labour's 13-year rule, when Cook's "ethical dimension" to foreign policy was trimmed. He said: "The coalition has watered down Labour's policy for a universal standard on arms sales. In 13 years Labour made mistakes in foreign policy. Every government does. But as foreign secretary I righted some of those mistakes.

"In Burma, the Democratic Republic of the Congo, Gaza and Sri Lanka, people knew the British government was taking action. Often it saved lives. It was what we said and the influence we wielded that did the job. Britain must stand up for the proposition that foreign policy is about values as well as interests. This is a prime test case."

MacShane, also a critic of Hague's political alliances in the European parliament, added: "I was proud as an FCO minister to visit pro-democracy, non-government organisations (NGOs) in many countries and see the UK human rights report being eagerly read. I doubt they will put up a picture of William Hague in its place."